Why getting a business valuation now will help you prepare for the future

If you are like many entrepreneurs, one of the most significant assets you own is your business. It provides you a good salary, various perks, and hopefully a reasonable annual return on your investment. Many business owners have children they hope to pass this asset to upon their retirement and so at some point, prior to that time, you have a business valuation performed for gift tax purposes or to determine the estate tax bite that will be incurred upon your death. However, what if you have no children or valued employees who are interested in following in your footsteps…then what? The logical answer is that at some point (usually close to retirement) you’ll sell the business on the open market.

Assuming that time is many years away, it’s easy to be complacent, earn a good living, and be prepared to deal with selling the business “when the time comes.” Good strategy? Not really.

Unfortunately, we know of many business owners who have taken that route and then when the time comes, they are sorely disappointed with the value they will realize upon the imminent sale. At that point, it’s too late to undo how they may have managed the business. Maybe they should have been more aggressive in generating new customers, better profit margins, or controlling expenses.

We often suggest to clients they consider having a business valuation performed well before it’s time to sell. A qualified business valuation expert can take your current financial information and then prepare several “what if” scenarios. What if you grew revenues and profits by x percent per year instead of y percent? What if you were able to increase your gross profit margin? What additional costs would you incur to improve the profits or costs that you could avoid and possibly improve the value?

These types of valuations are not very expensive to perform because you don’t need to have the valuator prepare a full blown valuation report that would normally be prepared if the results were going to be provided to a third party. One warning though…make sure you utilize the services of a qualified business valuation expert. Often a business owner will look to their CPA, assuming since they know the business and it is the business financial information to be utilized in the assessment, the business’ CPA is the logical preparer of a valuation. Unfortunately, having been involved in preparing business valuations for over 25 years, I have to suggest this would be a mistake.

Utilize someone with the right background, training, and credentials:

  • ABV (accredited in business valuations as certified by the American Institute of CPA’s)
  • CVA (certified valuation analyst as certified by the National Association of Certified Valuators and Analysts)
  • ASA (business valuation certification provided by the American Society of Appraisers)
  • IBA (business valuation certification provided by the Institute of Business Appraisers)

If you have any questions or need further guidance to ensure your business is preparing for the future,contact BSSF by calling 717.761.7171 (Camp Hill office), or 717.581.1040 (Lancaster office).


ABOUT THE AUTHOR

Bruce J. Brown, CPA

Principal

Bruce is one of the founding Principals and a Shareholder of Brown Schultz Sheridan & Fritz. Bruce specializes in tax and accounting matters for family-owned businesses and performs business valuations and litigation support for divorce matters and economic damages.